In recent years, the use of transaction cards has substantially increased. In many cases, transaction cards are used as a substitute for cash when purchasing goods or services. These transaction cards may be in the form of credit cards where a record of the transaction is kept and later billed to the cardholder. In some more recent systems, the card holder will fund an account which is debited for the amount of the transaction directly. These latter type of accounts are known as "debit cards". The banking industry has also begun utilizing transaction cards enabling common banking functions to be performed without a teller, using an automatic terminal.
As the use of these transaction cards has increased, so have losses related to fraud. Cards which have been lost or stolen are frequently used to purchase goods or services without the approval of the rightful owner. In addition, many counterfeit cards have been produced for unauthorized purchases. The industry has responded with a number of approaches designed to reduce the losses associated with such fraudulent transactions.
One of the initial approaches in the transaction card industry was to periodically print and distribute lists of lost or stolen cards. When a card is presented for a transaction, the card number is checked against this list prior to approval of the transaction. Unfortunately, this approach is time-consuming and prone to error. More importantly, because the information is distributed periodically, this system will not detect the fraudulent use of a card, prior to the time it has been reported lost, stolen or counterfeited and thereafter listed in the bulletin.
Recently, there have been developed various automatic "on-line" verification systems. In these systems, information about the cardholder and the transaction is transmitted via a communication link to a central control center for approval or further routing. In some cases, the central control center will be supplied with information about the cardholder and can make an approval decision. In some smaller transaction systems, the central station will be equivalent to the issuer of the card. In larger systems, where there are many card issuers, the transaction information may have to be routed from the central station to one of the outlying issuers for final approval.
When the first automatic systems were developed, the transaction information was typically entered into the approval network by the merchant, by telephoning a local operator who would enter the data in a terminal. More recently, numerous electronic terminals have been designed that automate the process. These terminals, which are placed at the merchant locations, are designed to receive the transaction information directly.
The terminals are provided with a means for reading the transaction card. For example, many transaction cards are provided with a magnetic stripe that is encoded with information, such as the account number of the cardholder and the institution which issued the card. These terminals will have a magnetic transducer for reading this information. The terminal will transmit the data on the magnetic stripe, along with other particulars of the transaction, such as the transaction amount, into the authorization system. The approval steps will then be taken, as outlined above.
As can be appreciated, where the issuer of the transaction card is remote from the point of transaction, significant communication costs can be incurred for each approval. In addition, the approvals are time-consuming and slow down the sales process. While the electronic approval process is suitable from the standpoint of reducing fraud, it would be desirable to balance the risk of fraud with the cost of approving every transaction.
One approach for reducing the costs of communication in an approval network is disclosed in U.S. Pat. No. 4,485,300, issued Nov. 27, 1984 to Peirce. The invention therein is directed toward a large transaction card system with multiple issuers of cards and a central data communication center. Prior to the invention disclosed therein, each transaction was routed by the control center to the respective issuers for approval. In order to reduce the need for the latter step, an approach was provided wherein various parameters were supplied to the control center. These parameters would define the type of transaction which could be approved directly by the control center, rather than transmitting the authorization request to the issuer.
These parameters are based on the general type of cardholder accounts of the issuer. For example, if the issuing institution has a small group of highly credit worthy customers, it can afford to set the transaction parameters relatively high. In this case, only higher dollar amount transactions need be referred back to the issuer for approval. In contrast, where an issuer has a large number of customers that represent high risk, the parameters would be set relatively low, to minimize the potential for credit and fraud losses. In the latter case, communications costs would be higher, however, these would presumably be offset by a reduction in losses. As can be seen, the issuer is able to make the decision based on its own needs.
The above described system has proved very successful in enabling an issuer to balance its communication costs with its credit and fraud losses. However, the latter approach still requires communication of the transaction parameters from the merchant to the central control station where the decision-making process is carried out. In addition, the parameters supplied to the data control center are based on a general evaluation of the cardholders of the issuer. Stated differently, these parameters are not keyed to the credit worthiness of each individual cardholder, but only represent an overall evaluation.
Based on the above, it would be desirable to provide a system where various transactions can be approved at the site of the transaction without incurring any communication costs. The decision should be under the control of the issuer and preferably based upon the credit worthiness of each individual cardholder.
Accordingly, it is an object of the subject invention to provide a new and improved system wherein the issuer can regulate the type of authorization requests, transmitted from the point of transaction.
It is another object of the subject invention to provide a new and improved system wherein an approval of a transaction can be generated off-line, at a remote terminal, based on criteria supplied by the issuer of the transaction card.
It is a further object of the subject invention to provide a new and improved system wherein issuers of cards can encode information on a transaction card to permit the evaluation of each transaction at a remote terminal.
It is another object of the subject invention to provide an approval system where communication costs are substantially reduced.